August 09th, 2011

Over the years we have seen a green effect become popular in America. Some say this was caused by consumer demand to acquire vehicles that pollute less and are more fuel efficient, but many analysts feel that the greening of America was mostly a result of the high CAFE standards set by the U.S. government, which forced automotive manufactures to develop alternative technology so they could avoid fines associated with the CAFE program. But more than likely the greening of the U.S. automotive market was caused by a combination of these factors.

The green effect really started years before the high gas prices hit with the introduction of the Toyota Prius and the Honda Insight. Early adopters of these vehicles were part of the first movements of the green effect. They ditched their plastic water bottles in exchange for refillable containers, they brought cloth sacks to take to the grocery store to cut back on plastic usage, and they bought a hybrid to help create and sustain a better environment (rather than for the benefit of savings at the pump).

The real noticeable change for hybrid sales began in 2008-2009. While the green effect movement was already producing a decent amount of hybrid sales, gas prices were increasing to the likes of which Americans had not yet experienced. In addition, when President Obama took office in 2009, he helped implement stricter CAFE standards for original equipment manufacturers (OEMs), which led to the expansion of the hybrid and alternative fuel programs. These two factors combined resulted in increased production and sales of these hybrid vehicles.

In today’s marketplace, nearly every automotive manufacture has a hybrid. However, is it worth the premium paid by the consumer when buying a hybrid rather than a gasoline-only option? Though hybrids will emit less emissions then regular gasoline vehicles and save money at the pump, the premium can range anywhere from $0 for the Lincoln MKZ to about $40,000 for the LS 600h L from Lexus. While not all hybrid buyers are only trying to save money, many are, and the perception in the market is that a hybrid is the most efficient way to do this.

For certain hybrids, this is true, but with some hybrids you will not experience an actual savings until you own the vehicle for several years. The reason for this is because you need to have saved enough to make up the difference between the gasoline version and the hybrid version of the vehicle before you can break even. This “payoff” point is calculated by the savings in gasoline yearly divided by the extra cost to buy the hybrid. When using this formula, it is discovered that many hybrid vehicles won’t produce a savings until the consumer has owned the vehicle for at least six to nine years. The table below shows the difference in fuel savings between the hybrid and a gasoline-only comparable vehicle.

Brand

Nameplate

Payoff_ in Years_

BMW

Active Hybrid X6

103.74

Ford

Fusion Hybrid

2.78

Ford

Escape Hybrid

9.83

GMC

Yukon Denali hybrid 4WD

5.05

Honda

Civic Hybrid

8.3

Hyundai

Sonata Hybrid

9.7

Lexus

RX 450h AWD

6.2

Lincoln

MKZ Hybrid

0

Mercedes Benz

ML 450 Hybrid

12.0

Mercedes Benz

S400 Hybrid

3.0

Nissan

Altima Hybrid

8.9

Porsche

Cayenne S Hybrid

8.5

Porsche

Panamera S Hybrid

6.1

Toyota

Camry Hybrid

9.5

Toyota

Highlander Hybrid

10.9

Volkswagen

Touareg Hybrid

55.2

Infiniti

M35h

6.6

Payoff figures are standard MSRP comparisons, and do not include tax incentives, or manufacturing incentives.

With long payoff periods before the payoff point on similar hybrid vehicles we can see that the buyer who is looking for savings at the pump will not actually achieve that objective for many years. If fuel savings is what the consumer is looking for, they will save money by buying a smaller vehicle with a more efficient engine, or purchasing a vehicle with a diesel engine. While the payoff period on many vehicles that offer a diesel engine is just as long, there are four diesel options which provide the driver a quick payoff period. Another important feature of a diesel engine is that the engine will last longer than a hybrid’s will.

The table below shows the premium on diesel engines, the savings in fuel economy when compared to their gasoline counterpart, and the amount of time the savings in fuel economy will take to equate with the higher cost of the engine.

Brand

Nameplate

Payoff_ In Years_

BMW

335d

4.6

Mercedes

ML350 Diesel

6.7

Mercedes

R350 Diesel

2.2

Mercedes

E350 Diesel

1.9

Audi

A3 2.0TDI Premium

4.4

Payoff figures are standard MSRP comparisons, and do not include tax incentives, or manufacturing incentives.

Diesel engines also provide the driver with all sorts of benefits, such as more torque in the product and much more efficient fuel economy then its gas counterpart. Diesel engines also have the ability to last hundreds of thousands of miles more than a gas engine. Yet, there are tradeoffs to owning a diesel product, which include paying a premium for the engine, paying a premium for the fuel, and paying a premium for engine maintenance such as oil changes. However, if your bottom line is to save money at the pump is a diesel engine is worth the extra costs.

When looking at this unique product, we must understand that diesel engines, while once considered smelly and highly pollutant, are now clean and get better mileage per gallon. But most American still cannot get around the notion that they would have to pay for diesel gas and that it will not offer the same cost savings in fuel economy because it is not a hybrid.

The table below shows the two vehicles that offer a diesel, hybrid, and gasoline engine

Make

Model

Yearly Fuel Savings

Premium for Engine

Payoff

Hybrid V Gas

In U.S. Dollars

In U.S. Dollars

In Years

Volkswagen

Touareg Hybrid

292

16115

55.2

Mercedes Benz

ML 450 Hybrid

776

9300

11.9

Diesel V Gas

Volkswagen

Touareg TDI

367

3,500

9.5

Mercedes

ML350 Diesel

601

4000

6.7

Hybrid V Diesel

Volkswagen

Touareg

-122

12615

-103.4

Mercedes

ML

130

5300

40.8

Hybrids are vehicles for people who want to cut back on emissions; however, diesel vehicles are the best selection if you want to actually save money on fuel by using less gasoline and less oil. This is the way that the utilization of diesel products can lead to a greener environment. The other way diesel cars will provide a relief to the OEM is at the CAFE level. While electric vehicles still offer the best mile-per-gallon numbers that are available on the market, diesel vehicles offer huge gains in fuel economy. By adding diesel products to an OEM lineup, like Volkswagen, CAFE standards would be easier for OEMs to meet and exceed.

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